This whole drama–or farce–is a classic example of how powerful people can rationalize anything, bending or rewriting rules to fit the game they want to play. It’s like the Calvinball game from the old “Calvin and Hobbes” comic strip: you make up your own rules and then decide if you’ve won or lost. Grasso’s gone, but corporate America is still playing Calvinball. And some of the folks in Washington have joined the game, too.
The whole argument over Grasso was a rationalization spectacle. Grasso and his defenders say that he did nothing wrong–he was only cashing the checks the NYSE board gave him, saying, “Thank you, I’m blessed,” all the way to the bank. Sure, the directors should all be fired–they presumably read Grasso’s contract, where the $140 million was prominently disclosed, before they approved it. But Grasso is no innocent. My bet is that he cashed out now, appearances be damned, to take advantage of the sharp cuts in the top federal income-tax bracket, and because today’s low interest rates let him get a huge payout for his pension rights. What’s more, he could end up with more than $50 million of severance pay, by my reading of his contract.
Dick Wagner, president of Strategic Compensation Research Associates, says Grasso’s contract has unusually favorable features, such as his being able to cash out his pension without retiring. And, Wagner asks rhetorically, “Why was the stock exchange, with only $1 billion in annual revenues, paying him based on what much bigger financial institutions were paying their CEOs?” The answer, obviously, is that Grasso got caught up in the pay frenzy of the ’90s, and wanted to make the same income as members of his capitalist club who were waxing rich on stock options. The NYSE has no stock options, because it doesn’t have publicly traded stock.
Even though Grasso’s gone and Sarbanes-Oxley reforms are the law of the land, don’t think corporate America is squeaky clean. SOX or no SOX, huge executive paydays and other excesses are still around, just in different form. Not long ago, everyone considered stock options to be great motivators and dissed restricted stock as mere free money to CEOs. Now the thinking’s reversed, and many CEOs are getting tons of restricted stock rather than options. And the usual suspects–consultants and lawyers–bless it all.
On to Washington, where we were treated to a spectacular flip-flop in market logic last week by Democratic presidential hopeful Joseph Lieberman. A decade ago, Lieberman cut accounting regulators off at the knees when they tried to do the right thing by adopting rules to treat the value of stock options as a corporate expense. The accounting loophole for options remained intact, helping lead to the market bubble and subsequent collapse. “Mr. Grasso’s behavior has shaken the faith of investors and the foundation of the stock exchange,” Lieberman said. As if what he did wasn’t far worse than Grasso’s supposed transgressions. Give me a break.
Finally, let’s look at President George W. Bush, whose minions are out raising $200 million for his re-election campaign because he doesn’t want to confine himself to public financing. Grasso and the exchange board came under fire on conflict-of-interest grounds because many directors represent institutions the exchange regulates. But consider this: the vast majority of Bush’s campaign money is coming from well-heeled people who’ve benefited hugely from his tax cuts. Instead of treating this as an outrage–which it is–Washington just counts the money. Grasso’s conflict is business as usual in Washington.
The irony is delicious. The New York Stock Exchange, a monument to greed, is applying a higher moral and appearance standard to Dick Grasso than Washington is applying to people running for president. Think about it.
